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    5 KW Solar IRR Calculation

    Uploaded by

    Raghav Nagpal
    The document summarizes the benefits of investing in a solar panel system compared to investing in mutual funds. It shows that investing in solar panels provides benefits starting in the first year in the form of electricity bill savings, whereas returns from mutual funds are only realized after many years. This early cash flow from solar panels means it has a higher internal rate of return (IRR) of 25-26% compared to 12% for mutual funds. It also explains how reinvesting the annual electricity savings can grow the returns over time, reaching a total of over Rs. 68 lakh after 21 years compared to Rs. 42 lakh from mutual funds over 25 years. Administrative costs are excluded from the calculations.

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    5 KW Solar IRR Calculation

    Uploaded by

    Raghav Nagpal
    45 views4 pages
    The document summarizes the benefits of investing in a solar panel system compared to investing in mutual funds. It shows that investing in solar panels provides benefits starting in the first year in the form of electricity bill savings, whereas returns from mutual funds are only realized after many years. This early cash flow from solar panels means it has a higher internal rate of return (IRR) of 25-26% compared to 12% for mutual funds. It also explains how reinvesting the annual electricity savings can grow the returns over time, reaching a total of over Rs. 68 lakh after 21 years compared to Rs. 42 lakh from mutual funds over 25 years. Administrative costs are excluded from the calculations.

    Original Title

    5 KW Solar IRR Calculation (1)

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    The document summarizes the benefits of investing in a solar panel system compared to investing in mutual funds. It shows that investing in solar panels provides benefits starting in the first year in the form of electricity bill savings, whereas returns from mutual funds are only realized after many years. This early cash flow from solar panels means it has a higher internal rate of return (IRR) of 25-26% compared to 12% for mutual funds. It also explains how reinvesting the annual electricity savings can grow the returns over time, reaching a total of over Rs. 68 lakh after 21 years compared to Rs. 42 lakh from mutual funds over 25 years. Administrative costs are excluded from the calculations.

    Copyright:

    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
    Download as xlsx, pdf, or txt
    45 views4 pages

    5 KW Solar IRR Calculation

    Uploaded by

    Raghav Nagpal
    The document summarizes the benefits of investing in a solar panel system compared to investing in mutual funds. It shows that investing in solar panels provides benefits starting in the first year in the form of electricity bill savings, whereas returns from mutual funds are only realized after many years. This early cash flow from solar panels means it has a higher internal rate of return (IRR) of 25-26% compared to 12% for mutual funds. It also explains how reinvesting the annual electricity savings can grow the returns over time, reaching a total of over Rs. 68 lakh after 21 years compared to Rs. 42 lakh from mutual funds over 25 years. Administrative costs are excluded from the calculations.

    Copyright:

    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
    Download as xlsx, pdf, or txt
    of 4

    NOTE:

    1. If you invest 250000 lump sum in an equity MF and assume a reasonable 12% return, you will get 42,50,016/-. But you cannot call it an o
    here's why:
    The cash flow illustration shows you the amount of money you will save each year on electricity bills. That means you are getting the benefits right from year 1 wherea
    you will reach 42 lakh only after 25 years. Getting benefits from year 1 means the time value of money is higher and therefore it carries an IRR of 25%-26%.

    Before comparing it with mutual funds we need to first understand the nature of this investment. This table does not look like a compounding investment, it rather loo
    instrument such as bonds that give you annual cash flows.

    2. How is the total cash flow of 19.6 lakh giving 25% IRR and 42.5 lakh from a mutual fund only 12%?
    Again, it's because of the time value of money. The benefits from solar panel will start coming from year 1 and let's say you first want to recover your initial investmen
    take only 4 years. 5th year onwards you start saving almost 100% of your electricity bill. Had you not installed a solar panel, you would still be paying this money for el
    saving this amount. If you start investing this saved amount every year in an equity mutual fund and assume a reasonable 12% return, you will get 68.7 lakh after 21 y
    for the first 4 years).

    This is what you can do if you start receiving the benefits early on and this is why the time value of money is higher. Because you now have even more opportunities to

    It is just like that question:


    If I am supposed to give you 1 lakh rupees, would you take it today or 10 years later?
    If your answer is "today", then you understood the concept of the time value of money

    3. AMC has not been considered in the following calculations because:


    A. For the first 5 years it's free
    B. 6th year onwards it will depend on factors such as inflation, and labor charges etc but it still remains a tiny fraction of the total savings and will not impact the IRR b
    C. Many new robotic solutions are also in the works the world over, it may even get cheaper in future.

    Year Units Produced Tariff (Rs/ Unit) Savings


    0 (250,000)
    Solar System Size 5 kW 1 7000 8.5 59500
    Units Produced by 1 kW 1400 per kW per year 2 6951 8.8 60856
    Annual Degradation 0.70% 3 6902 9.0 62240
    4 6853 9.3 63652
    Tariff 8.5 Rs/kWh 5 6804 9.6 65093
    Tariff Escalation 3% p.a. 6 6755 9.9 66563
    Cost 250,000 Rs 7 6706 10.1 68062
    IRR 26% 8 6657 10.5 69592
    9 6608 10.8 71152
    10 6559 11.1 72743
    11 6510 11.4 74366
    12 6461 11.8 76020
    13 6412 12.1 77707
    14 6363 12.5 79426
    15 6314 12.9 81179
    16 6265 13.2 82966
    17 6216 13.6 84786
    18 6167 14.0 86641
    19 6118 14.5 88532
    20 6069 14.9 90457
    21 6020 15.4 92419
    22 5971 15.8 94416
    23 5922 16.3 96451
    24 5873 16.8 98522
    25 5824 17.3 100631
    . But you cannot call it an opportunity cost,
    enefits right from year 1 whereas in the mutual fund
    es an IRR of 25%-26%.

    ounding investment, it rather looks like a fixed income

    to recover your initial investment of 2.5 lakhs, it would


    still be paying this money for electricity but now you are
    you will get 68.7 lakh after 21 years (you didn't invest

    have even more opportunities to utilize that money.

    gs and will not impact the IRR by more than 1%.


    Monthly Consumption of
    Month
    home ( in KWh)
    January 500
    February 600
    March 1000
    April 1100
    May 1100
    June 900
    July 800
    August 800
    September 800
    October 500
    November 500
    December 400
    Average Monthly Consumption 750
    Monthly Solar Generation 116
    Solar System Size Required 6.5

    Website: https://solarsquare.info/3ageLNp
    Whatsapp: https://wa.me/+917208979637

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